Are state-owned enterprises so much worse than QE or negativeinterest rates? writes Joe Zhang, Economic policymaking in the west has developed inradical ways since the global financial crisis. When LehmanBrothers collapsed in 2008, the US after some hesitation allowedthe Federal Reserve to intervene in the markets. Afterwards,the European CentralBankdid the same in response to the sovereigndebt crisis in Greece and other EU states. Since then, quantitative easing has had a real impact on westernmarkets. So-called helicopterdropsare now in vogue, and negative interestrates have gained acceptance in spite of widespread anxiety abouttheir unknown effects. The fashion for unconventional monetarypolicy was highlighted yesterday with the ECB’sdecisionto cut interest rates in the eurozoneto a record low and to expand its quantitative easing package. But there are other ways of stimulating demand. Why, for instance,do western governments refuse to set up state-owned enterprisesthat will create jobs? Are they really so much worse than QE andlow or negative interest rates? A number of concerns surround the state sector. First, it is lessefficient than private businesses. But when private investmentfalls well below a desired level, the state should step in to fillthe gap. In any case, it is debatable whether state-run enterprisesare less efficient than welfare spending, direct subsidies, QE ornegative interest rates. Second, will investment by the state sector necessarily displace(or “crowd out”, as economists like to say) the private sector?Evidence is mixed. In some cases, this may happen if the statecompetes with private companies for financing, pushing up borrowingcosts. But the west today does not have to worry about that, sinceit is sliding into a zero-interest rate environment. Moreover, evidence from around the world suggests that the statesector supports the operation of the private sector. It can evenhelp to incubate new private industries by providing “patientcapital” and basic infrastructure, as well as physicalfacilities. There is not much that Chinacanteach the rest of the world about economic policy.Nevertheless, its experience in the past centuryor so can be a useful reference point for policymakers. (for therest of the essay, click the link below) http://www.ft.com/intl/cms/s/0/f3a02f84-e6d0-11e5-a09b-1f8b0d268c39.html#axzz42WzZissx |
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